Estate of Gerson v. Comm'r

Laro, J., dissenting: The Court’s opinion concludes supra p. 157 that respondent’s interpretation of section 1433(b)(2)(A) of the Tax Reform Act of 1986 (TRA 1986), Pub. L. 99-514, 100 Stat. 2731, “is a reasonable and valid interpretation of the plain language of TRA 1986 section 1433(b)(2)(A)”. Because I disagree, I dissent. 1 As the Courts of Appeals for the Eighth and Ninth Circuits held in Simpson v. United States, 183 F.3d 812 (8th Cir. 1999), and Bachler v. United States, 281 F.3d 1078 (9th Cir. 2002), factual settings that the Court’s opinion supra pp. 148 and 150 acknowledges are “nearly identical” to the factual setting at hand, the plain reading of TRA 1986 section 1433(b)(2)(A) leads to a conclusion contrary to that expressed in the Court’s opinion. The conclusion in the Court’s opinion is predicated on its finding that respondent’s interpretation is “a reasonable * * * interpretation of the plain language” of TRA 1986 section 1433(b)(2)(A), as opposed to a finding, which the Court’s opinion does not make, that respondent’s interpretation represents the plain reading of TRA 1986 section 1433(b)(2)(A). To my mind, an unambiguous statute has only a single plain reading, see Chickasaw Nation v. United States, 534 U.S. 84, 94 (2001), and any other reading is ultravires even if it is “reasonable”. 2 Such is especially so where, as here, respondent s interpretation was previously rejected by a judicial tribunal in favor of the plain reading application of that section.

TRA 1986 section 1433(b)(2)(A) provides in relevant part that the GST does not apply to any generation-skipping transfer under a trust which was irrevocable on September 25, 1985, but only to the extent that such transfer is not made out of corpus added to the trust after September 25, 1985 3 . As noted in the Court s opinion supra pp. 142 and 148 149, the Secretary proposed section 26.2601 l(b)(l)(i), GST Tax Regs., in 1999, 13 years after the enactment of TRA 1986 section 1433(b)(2)(A), to supplant the literal interpretation that the Secretary had given TRA 1986 section 1433(b)(2)(A) in a predecessor regulation and, more particularly, to overrule the judiciary s rejection in Simpson v. United States, supra, of respondent s more restrictive interpretation of TRA 1986 section 1433(b)(2)(A). As finalized, section 26.2601 l(b)(l)(i), GST Tax Regs., states in relevant part:

The provisions of chapter 13 do not apply to any generation-skipping transfer under a trust (as defined in section 2652(b)) that was irrevocable on September 25, 1985. * * * Further, the rule in the first sentence of this paragraph (b)(l)(i) does not apply to a transfer of property pursuant to the exercise, release, or lapse of a general power of appointment that is treated as a taxable transfer under chapter 11 or chapter 12. The transfer is made by the person holding the power at the time the exercise, release, or lapse of the power becomes effective, and is not considered a transfer under a trust that was irrevocable on September 25, 1985. * * *

Petitioner’s appeal of the Court’s opinion’s acceptance of respondent’s nonliteral interpretation of TRA 1986 section 1433(b)(2)(A) will most certainly be to the Court of Appeals for the Sixth Circuit. That court has advised lower courts that “Where the statute is clear, the agency has nothing to interpret and the court has no agency interpretation to which it may be required to defer.” Dixie Fuel Co. v. Commr. of Soc. Sec., 171 F.3d 1052 , 1064 (6th Cir. 1999), abrogated on other grounds by Barnhart v. Peabody Coal Co., 537 U.S. 149 (2003); accord Bradley v. Austin, 841 F.2d 1288, 1293 (6th Cir. 1988) (“In determining the meaning of legislation, we must first look to the plain language of the statute itself. * * * If we find that the statutory language is unambiguous, then that language is regarded as conclusive unless there is a clearly expressed legislative intent to the contrary”); Ohio Power Co. v. NLRB, 176 F.2d 385, 387 (6th Cir. 1949) (holding that plain and unambiguous text must be applied as written without resort to construction); see also Chevron U.S.A., Inc. v. Natural Res. Def. Council, 467 U.S. 837, 842-843 (1984) (“If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress”). The Courts of Appeals for the Eighth and Ninth Circuits have held in Simpson v. United States, 183 F.3d 812 (8th Cir. 1999), and Bachler v. United States, 281 F.3d 1078 (2002), that the general rule in TRA 1986 section 1433(b)(2)(A) may be applied plainly as written, and the Court’s opinion sets forth no persuasive reason as to why the Court of Appeals for the Sixth Circuit, or any other Court of Appeals for that matter, should (or will) disagree with the holdings of those cases. 4

The Court’s opinion strains to find an ambiguity in the clear reading of tra 1986 section 1433(b)(2)(A) by referencing Peterson Marital Trust v. Commissioner, 102 T.C. 790 (1994), affd. 78 F.3d 795 (2d Cir. 1996). That case is both factually and legally distinguishable from Simpson v. United States, supra, and Bachler v. United States, supra. First, as a matter of law, Peterson Marital Trust did not deal with the part of the statute at issue in Simpson and Bachler (as well as at issue here). The case of Peterson Marital Trust concerned the part of TRA 1986 section 1433(b)(2)(A) that follows the comma; i.e., the exception that provides “only to the extent that such transfer is not made out of corpus added to the trust after September 25, 1985”. The Courts of Appeals for the Eighth and Ninth Circuits construed the part of TRA 1986 section 1433(b)(2)(A) preceding the comma; i.e., the general rule that provides “any generation-skipping transfer under a trust which was irrevocable on September 25, 1985”. The Courts of Appeals for the Eighth and Ninth Circuits held specifically that the exercise of a general testamentary power of appointment by a beneficiary of a decedent’s trust is within the “clear” or “straightforward” plain reading of the general rule because the exercise is a transfer under a trust which was irrevocable on September 25, 1985. Bachler v. United States, supra at 1079, 1080 (the court reached its decision by applying a “straightforward reading” of the general rule); Simpson v. United States, supra at 813, 814, 816 (the court held that the reading of the general rule is “clear”); accord Bartlik v. U.S. Dept. of Labor, 62 F.3d 163, 165-166 (6th Cir. 1995) (courts must endeavor to apply the plain meaning of a statute as ascertained through a “straightforward” and “commonsense” approach). The Courts of Appeals for the Eighth and Ninth Circuits rejected respondent’s reading of the general rule to require that the transfer be irrevocable on September 25, 1986, a reading also espoused by respondent here and accepted by the Court’s opinion supra pp. 152 and 154-155, concluding instead that the general rule in TRA 1986 section 1433(b)(2)(A) plainly required that the trust be irrevocable on that date. See Bachler v. United States, supra at 1080; Simpson v. United States, supra at 814. That conclusion is supported by the “rule of the last antecedent”, under which the clause “which was irrevocable on September 25, 1985” should be construed to relate to the word “trust” and not to the word “transfer”. See 2A Singer, Sutherland Statutory Construction, sec. 47:33 (6th ed. 2000); see also Barnhart v. Thomas, 540 U.S. 20, 26 (2003). That conclusion also is supported by the fact that Congress apparently drafted the general rule with a broad and precise brush, providing explicitly that the GST “shall not apply to * * * any generation-skipping transfer under a trust which was irrevocable on September 25, 1985.” (Emphasis added.) Accord Dixie Fuel Co. v. Commr. of Soc. Sec., supra at 1061 (noting that the “Supreme Court has held in any number of contexts that ‘shall’ is ‘explicitly mandatory’ language”).

The cases of Simpson v. United States, supra, and Bachler v. United States, supra, also are factually distinguishable from the case of Peterson Marital Trust v. Commissioner, supra. The cases of Simpson and Bachler, like the present case, involved the exercise of a power of appointment and the question of whether the exercise was a transfer under a trust; the case of Peterson Marital Trust involved the lapse of a power of appointment and the question of whether the lapse added corpus to the trust. As the Courts of Appeals noted in Simpson v. United States, supra at 815-816, and Bachler v. United States, supra at 1080, this critical point sufficiently distinguished those two cases from Peterson Marital Trust and the holding thereof. See also Simpson v. United States, supra at 815 (“The distinction between Peterson and the present case is obvious.”). The courts also noted that the lapse in Peterson Marital Trust was governed by a temporary regulation that stated what constituted “corpus added to the trust” and that the exercise of the power of appointment was outside of that regulation in that the exercise depleted, rather than added, to the trust’s corpus. See Bachler v. United States, supra at 1080; Simpson v. United States, supra at 815-816.

In closing, I believe that the Court in this case should apply the plain and unambiguous reading of the general rule, consistent with the reading of the Courts of Appeals for the Eighth and Ninth Circuits. Because the Court’s opinion does not do so, I dissent.

Colvin, Vasquez, Gale, and Wherry, JJ, agree with this dissenting opinion. Following a prior judicial decision rejecting respondent’s interpretation of TRA 1986 sec. 1433(b)(2)(A) as inconsistent with the plain reading of that section, respondent caused his interpretation to be prescribed in sec. 26.2601-l(b)(l)(i), GST Tax Regs. The Court’s opinion supra p. 152 frames this case as “a question of first impression concerning the validity of section 26.2601-l(b)(l)(i), GST Tax Regs.” I view this case differently. In a case such as this, where the question involves an “interpretation of the plain language” of a statute, respondent’s interpretation of that language is not entitled to any greater respect simply because respondent has bootstrapped his interpretation by causing it to be prescribed in a regulation. The judiciary, and not respondent (or the Secretary), is the final authority on the plain meaning of a statute. See Rubin v. United States, 449 U.S. 424, 430 (1981); Volkswagenwerk v. FMC, 390 U.S. 261, 272 (1968); FTC v. Colgate-Palmolive Co., 380 U.S. 374, 385 (1965). While Natl. Cable & Telecomm. Association v. Brand X Internet Servs., 545 U.S. 967 (2005), allows an agency in certain cases to overrule an adverse judicial interpretation through the issuance of regulations, that case is inapplicable where, as here, the judicial interpretation follows from the unambiguous terms of the statute.

I disagree with the Court’s opinion’s conclusion supra p. 154 that “Congress has [not] directly spoken to the precise question at issue” “Inasmuch as TRA 1986 section 1433(b)(2)(A) does not define the phrase ‘transfer under a trust’”. Congress has spoken directly on this issue in the best way that it can; i.e., by providing in unambiguous terms that the generation-skipping tax (GST) “shall not apply to * * * any generation-skipping transfer under a trust which was irrevocable on September 25, 1985 . TRA 1986 sec. 1433(b)(2)(A) (emphasis added); see HUD v. Rucker, 535 U.S. 125, 131 (2002) ( As we have explained, the word any has an expansive meaning, that is, one or some indiscriminately of whatever kind (quoting United States v. Gonzales, 520 U.S. 1, 5 (1997))); United States v. Am. Trucking Associations, Inc., 310 U.S. 534, 543 (1940) ( There is, of course, no more persuasive evidence of the purpose of a statute than the words by which the legislature undertook to give expression to its wishes. ); see also United States v. Monsanto, 491 U.S. 600 , 606 609 (1989); D.J. Lee, M.D., Inc. v. Commissioner, 931 F.2d 418, 420 (6th Cir. 1991), affg. 92 T.C. 291 (1989); Cornett-Lewis Coal Co. v. Commissioner, 141 F.2d 1000, 1004 (6th Cir. 1944), revg. and remanding 47 B.T.A. 571 (1942). I know no rule of law, nor has the Court s opinion referenced any such rule, that states that a term is ambiguous simply because it is not defined by Congress. The Supreme Court has stated time and again that courts must presume that a legislature says in a statute what it means and means in a statute what it says there. * When the statutory language is plain, the sole function of the courts at least where the disposition required by the text is not absurd is to enforce it according to its terms. Arlington Cent. Sch. Dist. Bd. of Educ. v. Murphy, 548 U.S. 11, 11 , 126 S.Ct. 2455, 2459 (2006) (citations and internal quotation marks omitted).

As I read TRA 1986 sec. 1433(b)(2)(A), Congress included within that section both a general rule and an exception thereto. The general rule provides that the GST does not apply to any generation-skipping transfer under a trust which was irrevocable on September 25, 1985 . The exception provides that the general rule applies only to the extent that such transfer is not made out of corpus added to the trust after September 25, 1985 .

The Court’s opinion suggests supra p. 154 that the Courts of Appeals for the Eighth and Ninth Circuits did not consider the general rule in its “particular context”. I disagree. Those courts applied the general rule according to the plain reading of its terms and, consistent -with settled law, see, e.g., Bower v. Fed. Express Corp., 96 F.3d 200, 208 (6th Cir. 1996) (holding that an ambiguity in one part of a statute is not cause to narrow or expand the plain meaning of a term found elsewhere in the statute), declined respondent’s invitation to narrow the plain reading of those terms on account of a proffered ambiguity in the terms of the statute. When a clear term may be construed plainly as written, a court should not strain to find ambiguity in that term so as apply it differently. See Sphinx Intl., Inc. v. Natl. Union Fire Ins. Co., 412 F.3d 1224, 1228 (11th Cir. 2005).